Export growth rates among Scottish firms hit a three-year high

Tourism and exports are both being buoyed by the fall in the value of the pound

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One-third of Scottish firms experienced an increase in export activity during the three months to September as the weak pound supported the country's production and tourism sectors.

However, the latest Royal Bank of Scotland Business Monitor carried out by the Fraser of Allander Institute (FAI) also found that cost pressures are continuing to build, with 51 per cent anticipating further increases in the next six months.

This suggests continuing pressure on consumer inflation, the FAI said.

Stephen Boyle, chief economist with the Royal Bank of Scotland , said the results provide “welcome confirmation” of continued modest growth and the prospect that the economy will continue to expand into 2018.

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“The apparent return of sustained export growth is especially notable, likely underpinned by both sterling's depreciation and the recovery in demand in the euro area economies,” Boyle said. “The persistence of inflationary pressures is unwelcome and suggests that households will feel a squeeze on their spending power for some time to come yet.”

Of the 400 firms surveyed, 33 per cent reported an increase in export activity during the three months to September. One in five – 21 per cent – reported a decline, giving a balance of 12 per cent.

That compared to a balance of 9 per cent in the second quarter and is the strongest increase recorded in three years.

The production sector led the way in rising exports, with a net 22 per cent reporting an increase, while a net 6 per cent of services firms posted an increase in exports. Business are optimistic the trend will continue, with net 6 per cent expecting export activity to rise during the next six months.

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More than a third of firms reported an increase in total business volumes. The positive balance of 9 per cent is a rise of three points on the second quarter and is six points higher than on the same period a year earlier.

The increase in activity was most prominent in the construction sector. In the services sector, both financial services and tourism posted above-average growth.

But capital investment continued the downward trend that started at the beginning of this year. One in five firms reported an increase in capital investment, but a higher margin of 28 per cent reported a fall. The resulting balance of minus 8 per cent is a deterioration from the negative 5 per cent in the second quarter of this year, and the minus 8 per cent recorded in the first quarter.

Professor Graeme Roy, director of the FAI, said the economy continued to grow thanks in large part to booming exports.

“This welcome news comes just a few days before the official GDP figures for the second quarter of 2017 are published on Wednesday,” Roy said.

“Rising costs continue to pose a challenge for many firms however, and Scottish businesses will be watching closely for any signs that the members of the Bank of England's Monetary Policy Committee are reaching a consensus on the prospect of raising interest rates in the coming months .”